Investing in liquid mutual funds is perfect for low-risk investors with short-term financial goals. Any surplus cash, bonus, sale proceeds from property etc can be invested in liquid funds for a short period of time.
While popular, many investors are still confused regarding how to invest in liquid funds. In this article, we will give a detailed step by step guide on how to invest in liquid funds.
Liquid mutual funds invest in debt papers with maturity of less than 91 days. These papers are issued by private or public companies and the government. These papers have high credit ratings and carry very little credit risk.
How to Invest in Liquid Fund: Online and Offline mode
You can invest in liquid mutual funds in two ways:
- Offline Mode
- Online Mode
Offline Investing - In offline investing, you need to fill in the application form, attach your investment cheque and submit it to the nearest Cams/Karvy offices. This process is quite time consuming. You need to submit the application before the cut off time. Also, there are chances of the application getting rejected due to signature mismatch or incomplete form etc.
Online Investing: Online investing has completely changed the mutual fund investment landscape. You can now invest in liquid mutual funds with just the click of a button.
There are two ways to invest in liquid mutual funds online:
- Invest through platform provided by the fund house
- Invest through platform provided by your broker
Investing in Liquid mutual funds through platform provided by the fund house
In India, all Asset Management Companies (AMCs) provide an investment platform. You can buy, sell, switch, do SIP, STP etc through the platform. You simply need to register with the platform, create your login credentials and start investing.
But there are some disadvantages of these platforms:
- You have to maintain multiple login credentials for each AMC.
- You do not get detailed account statement of all your holdings across AMCs. You need to visit another third party (Cams) to get consolidated accounts statement.
- You do not get any investment advice or even suggestion from the AMCs.
- These platforms put the responsibility of monitoring the portfolio on clients. So, in case of any error in the reports, the client has to raise query and follow-up with the AMC. This is quite time consuming.
- The investor has to himself fetch all capital gains report, grandfathering report etc from the AMCs.
Since investing directly through the AMC website eliminates brokers and advisors, it is quite cumbersome for investors. It can also lead to errors in transactions. Hence it is recommended to invest in liquid funds via the platform provided by your broker.
Investing in Liquid mutual funds through platform provided by your Broker
When you invest in liquid mutual fund with RankMF, you get the following benefits:
- Access to the entire mutual fund universe of 2500+ schemes.
- Advice on which funds to invest based on 20 million parameters.
- RankMF also provides advice on the quality of funds in your portfolio. RankMF’s proprietary SmartSwitch facility helps you switch out from poor quality funds into fundamentally strong funds.
- Consolidated portfolio reports across AMCs. All your investments are available in the same place.
- Your broker can help in placing buy, sell, switch orders etc. But you can also do these yourself as the process is very simple.
- Access to a world class customer service team.
- All capital gains and other statements at fingertips.
So, if you are investing in liquid funds for the first time, then RankMF is the perfect investment platform for you.
Before you invest in liquid mutual funds you need to complete your ‘Know Your Customer (KYC)’ formalities.
KYC: Without KYC you cannot invest in liquid mutual funds or any other mutual fund. To complete your KYC formalities, you need to fill in the KYC form and submit to a KYC registration agency along with supporting documents. You will need to submit self-attested Pan card, Aadhaar Card or any other address proof and a photograph.
There is a simpler way of doing your KYC without filling any physical forms. By opening a FREE RankMF account, you can complete your KYC online within 5 minutes. No paperwork.
You also need to keep in mind the following before you invest in liquid mutual funds:
1. Cut-off Timing:
- When you invest in liquid mutual funds, you need to strictly follow the cut-off timing. The cut-off timing determines which day’s Net Asset Value (NAV) will be applicable to your purchase or redemption.
- The cut-off time for investing in liquid mutual funds is 1.30 pm. This means that if you invest before 1.30 pm you will get the same day’s NAV. But if you invest after 1.30 pm you will get the next day’s NAV.
- The cut-off time for redemption is 3.00 pm. So, if you redeem before 3 pm, you will get the same day’s NAV. And if you redeem after 3 pm, you will get the next day’s NAV.
- Liquid funds follow debt taxation. The holding period for liquid funds is 36 months.
- If you redeem before 36 months – short term capital gains tax as per your tax slab will be applicable.
- If you redeem after 36 months – long term capital gains tax @20% with indexation will be applicable.
- Dividends received from liquid funds are also taxable in individual taxpayers’ hands. The tax on dividend is taxable as per applicable tax slabs.
3. Exit Loads:
- While you can invest and redeem liquid funds within 1 day also, liquid funds are subject to exit loads. Majority of liquid funds have an exit load period of 7 days only. If you invest in liquid mutual funds for less than 7 days then you will end up paying exit loads as per the below table:
Exit Load % Redemption Within Exit Load on Rs 1 Lakh 0.0070% 1 Day 7.00 0.0065% 2 Days 6.50 0.0060% 3 Days 6.00 0.0055% 4 Days 5.50 0.0050% 5 Days 5.00 0.0045% 6 Days 4.50 0.0000% 7 Days 0.00
So, if your investment period is less than 7 days, then you should invest in overnight funds as they have zero exit load.
How to Invest in Liquid Mutual Funds – A step-by-step guide
To invest in liquid mutual funds with RankMF, you need to follow the below steps:
- Open a FREE RankMF account.
- Complete your e-KYC. It only takes 5 minutes.
- Select the best liquid mutual funds based on RankMF’s 20 million parameters
- Invest in liquid mutual funds in just 1 click!